Finance Minister P Chidambaram has announced excise duty cut across the vehicle segment to provide much needed tax stimulus to arrest sapping demand.
The much needed relief to the sluggish automotive industry seems to be in sight. Finance Minister P Chidambaram today announced a reduction in excise duty on automobiles in the interim Budget 2014-15. Under the said proposal, prices of small cars, SUVs and motorcycles will see a significant cut in the next financial year.
The government has proposed that the duty on small cars and motorcycles – the country’s highest selling segment – should be reduced to 8 per cent from 12 per cent, while that on sport utility vehicles should come down to 24 per cent from 30 per cent and that of larger cars to 20-24 per cent from 24-27 per cent. The reduction in excise duty is likely to cut prices of two-wheelers by about Rs 1,200-1,500 per unit. SUV price cut would be around Rs 50,000-80,000 per unit.
The said proposal if accepted and put into effect, would help bolster demand in the automobile market, which is currently going through one of its worst phases in recent times. The country’s car sales slid 10 per cent in 2013, the first annual decline in 11 years, because of high fuel prices and borrowing rates. The slump in car sales continued in 2014 as well, with January registering car sales fall for the fourth straight month with a decline of 7.59 per cent to 1,60,289 units from a year earlier.
The main beneficiary of excise duty cut on small cars would be India’s largest automaker, Maruti Suzuki, whose small cars constitute nearly 65 per cent of total volume. The quantum of excise duty would be determined on the basis of how much the companies pass on the benefit to the consumers. Maruti Suzuki is currently offering average cash discount of Rs 18,000 per unit, so reduction in the average cash discount would be positive for margin improvement. Maruti would be rolling out newly launched Celerio, so price reduction on back of excise duty will make product more luring for small car segment. On the medium car segment main beneficiary would be Hyundai and Nissan, which constitute 36 per cent of sales in 4,250-4,500mm size. On the two-wheeler segment real benefit of excise duty will percolate to Hero MotoCorp.
The excise duty cut on the Commercial vehicles is unlikely to change the demand dynamics of the sector, given the cash discount currently ranging between Rs 175000-180000 per unit, but volume growth still on the downward slope. Coming as a huge respite for Mahindra & Mahindra Ltd, UV excise duty will help to arrest the falling the sales volume. Though UV1 segment has been grown on ramp up sales volume of Ford EcoSport and Renault Duster, but UV2 segment sales volume dropped to 1.77 lakh units in nine month of financial year 2014 compared to 2.14 lakh units a year before in the same period.